Perhaps the most difficult part of any house project is financing. Especially since the Wild West days of creative mortgage financing are at least a temporary thing of the past. This isn’t a bad thing necessarily—our financial system is certainly better off without liar loans and some of the other craziness that so defined last decade’s housing bubble and crash—but it does require a little more effort to find the right financial institution to fund your project.
|(Not our bank, but what better way to bring together architecture and community|
banking than American master Louis Sullivan.)
Our experience has been that you might as well forget the big banks if you want anything more than a line of credit or a smallish home equity loan. The bigger the bank the less interested they seem to be in anything that isn’t a standard product that they can buy, trade, slice, dice, or otherwise commoditize. So what to do? Your friendly neighborhood community bank is what you want to look for. But even then it might take some time calling around to find a few that do the kind of construction lending you are looking for. (You can click here to find a community bank in your neck of the woods.) Not only are they much more likely to do construction lending for residential projects but they also tend not to outsource the regular inspections that are needed each time the contractor wants to draw on the funds. Plus their construction programs seem to be renovation junkies who take a real interest in your project.
To be really helpful, I would love to into all the details of our financing. But that starts to get really personal really fast, so I will resist my urge to lay it all out on the table. I will say that it took us months and months trying to figure it all out. How much we would need, how much cash they would make us put into the project, reams and reams of information for underwriters, appraisals, and the list goes on. And it all came down to that appointment this week where you just cross your fingers hoping that everything is in place for closing.
Essentially, the bank is paying off our existing mortgage and funding 80% of what we need for construction. And all of that, together with closing costs turns out to be 80% of what the house will be worth when construction is finished. Simple, right?
Since the money starts accruing interest as soon as the loan funds we really wanted to leave closing until the last moment before the project actually began. But even I didn’t think we would close on our loan in the morning and then have our kick-off meeting with our contractor that afternoon.
The kick-off meeting is kind of self-explanatory. It’s the moment when client, contractor, and architect are all in the room at the same time to discuss roles and responsibilities, schedules, work plan, change order processes, etc. In this case it was our architect, her project architect, the contractor, his project manager, and the two of us. The project manager, the project architect and most likely me, are the three that are probably going to be interacting the most over the next 12 months.
I’ve already written about how much confidence we have in our architect and her team, let me now just say a word or two about our contractor and his project manager. First they exude calm confidence and are excellent communicators. I have no worries about working with them. I think in the world of contracting there are those that do good work but may fly a little by the seat of the pants when it comes to administration and overall professional demeanor. I would imagine it would be a lot like the ones you see Jeff Lewis using on his show Flipping Out. Our contractor is not that kind of contractor. I know we will have to pay attention and keep an eye on things but the word turnkey keeps coming into my mind.
Coming soon: squeezing a five-bedroom house into a two-bedroom apartment.
Next week: Work begins.